It may be a holiday, a new car or a deposit for your first home, but having a short-term savings goal can be an effective way to get into the habit of saving – with the added benefit of achieving the goal.
But where do you start? First, you must decide how much money you will need for your savings goal (how much will that holiday really cost?) and calculate how much you need to save each month and how long it will take you to save that amount.
Next, you may need to rein in your expenses. The Australian Securities & Investments Commission’s (ASIC) MoneySmart guide recommends starting off by reducing your spending on non-essential items, such as entertainment, dining out, memberships or subscriptions.
Adjust your spending patterns
You don’t have to give up these daily luxuries completely, if you take the advice of Deborah Kent, owner of Integra Financial Services and NSW State Director of the Association of Financial Advisers. She suggests simply switching to low-cost social activities, such as walks with friends, seaside picnics or visiting art galleries and museums. Dining at BYO restaurants only can also be friendlier on the pocket, allowing you to meet your weekly or monthly savings requirements.
ASIC also recommends using cash – including EFTPOS or a debit card – when shopping, rather than relying on your credit card. This helps you stay on top of your spending and acts as a reminder to think about every purchase and decide if it’s a necessity or whether it can wait until your savings goal is achieved.
Research your savings options
You can achieve your savings goal faster with the help of added interest from a high-interest savings account or term deposit. A high-interest savings account accrues interest on the growing balance at a higher interest rate than regular transaction accounts, so it’s an option worth investigating.
UBank’s USaver account offers one of the highest maximum interest rates at RateCity currently, at 4.67 percent (available until December 31), while several other institutions offer maximum rates upwards of 4.5 percent. If your goal is to save $5000 by putting aside $200 a month, it would take you 25 months at 4.5 percent interest rate to reach your goal. You would earn more than $200 in interest over that period. If you can afford to save more each month, you will achieve your goal faster. But there are many competitive online savings products, so make sure you do your homework.
Term deposits are another convenient way to earn a higher interest on your money and reach your savings goal faster. They generally require a minimum opening balance – usually $5000 – and can last from 30 days to five years, with higher rates payable on longer periods.
Before you make a decision it’s important to assess your financial situation and shop around for the savings option that best suits your needs.